Exchange, Knowledge Discovery One Use Partnership to Target Retailers

Exchange Applications, Boston, and Knowledge Discovery One Inc., Austin, TX, are slated to announce a partnership at the DMA fall show that will let retailers implement marketing campaigns based on customers' individual purchasing histories.

As part of the partnership, KD1 will resell Exchange Application's Valex campaign management software to users of its Retail Discovery Suite, which helps retailers identify their most profitable transactions and customers.

The companies will use RDS' retail data mining algorithms and analysis templates to segment customers and look at market-basket data and trends and buying behavior. Then, they will use Valex to plan, execute and track direct marketing campaigns based on these customer segments and assess post-campaign results. The companies are announcing the first step of the program, which includes data-level integration, but expect it to become more integrated over time. The license fee of the joint solution will start at $500,000, plus $200,000 for implementation services.

KD1 and Exchange already have sold the program to a leading retailer of home-improvement products.

"[This company] will use detailed transaction records to find profitable customer segments to implement an investment strategy for direct marketing," said Joe Dalton, founder and executive vice president of sales and marketing at KD1. "For example, they may find that certain types of contractors are heavy shoppers of one or two departments but may be underrepresented in other departments. Those contractors will be segmented, their market baskets will be analyzed and then they will use Valex to determine the best way to target that segment."

The system will let the retailer go beyond a simple analysis of what was sold by linking it with information about the person who bought it and then targeting that customer with direct mail campaigns that match his explicit behavior.

"What [this company] would have to do before this is basically put an incentive in the store for any consumer to take advantage of," said Pat McHugh, vice president of marketing and business development at Exchange, "when what they really want to go after is the contractor that is buying a high amount of a particular material and other high-market tools that go along with that."

The retailer will receive point-of-sale data from direct transactions in its stores, and the system will upload this information nightly.

Both companies said the partnership is a perfect fit.

"We considered several campaign management solutions and believe that Exchange Applications' Valex product provides the most accurate and in-depth data optimization," Dalton said.

McHugh added: "For us to enable a direct marketing strategy, we have to be able to understand who the consumer is and what the right behavior to target is. When we looked at the tools in the retail marketplace, we found that most of them were operating at the merchandising category at the store level, but couldn't explicitly do the analysis to the individual consumer. KD1 is the first approach that lets the retail distill out at the consumer level."

This, he said, makes the approach unique but also makes the job harder. "We are not just trying to compile groups of customers but individual customers," McHugh said.

Analysts also see it as a step in the right direction.

"[The partnership] expands the universe for KD1, bringing market-basket analysis more toward the actual desire of the person holding the market basket," said Don Bellomy, senior analyst with Aberdeen Group, Boston. "In addition, it brings breadth and integration to the KD1 product, and this is what customers are looking for. I think we will be seeing a lot more tie-ins like this in retail, specifically, and a lot more in general."

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